Usury And Payday Loans – An Unreasonable Comparison

Payday lending has been criticized on numerous grounds by a variety of sources, but inevitably these criticisms tend to point back toward a single source: usury. Lending and the charging of interest – including the idea of “exorbitant or unlawful rate of interest,” as a Google find describes usury – most likely predate the creation of the Judeo-Christian Bible and similar monotheistic world religious books. And within such books, the most loyal enemies of payday lending find the base for their reason for equating payday loans with usury. But as careful examination of both the secular (dictionary) definition of usury and the religious interpretation will show, connecting payday lending and usury is both unreasonable and exorbitant in and of itself.

Knowing your history: Payday lending and usury

Although some Judeo-Christian scriptures, like that of Exodus 22:25, Ezekiel 22:16-31, Ezekiel 18:8-17, articulate toward a ban on usury and charging interest, there are many other scriptures that make the distinction that “Hebrews were permitted to make interest-bearing payday loans to non-Jews, but not to fellow Jews.” Nehemiah 5:9-10 is a Judeo-Christian scripture that relates to interest and usury and is commonly misinterpreted. It refers to an entirely different animal because what is being discussed there is undue taxation, instead of interest-bearing loans.

Historically, when it came to the business of charging interest, the Renaissance and Protestant Reformation brought about a sensible re-awakening. Religious leaders such as John Calvin, Martin Luther and numerous other luminaries proposed that the only thing that needed regulation was “excessive interest.” By 1461, the business of pawnshops received blessing from Pope Paul II. Thus, interest-bearing loans (from which payday lending is a direct descendant) gained popular approval.

The words ‘excessive’ and ‘unlawful’ continues to pop up

So perhaps a secular assessment is required to show that payday lending and usury are two very different things. The Breitbart blog Big Journalism suggests the since various states in the United States set a maximum chargeable fee for payday loans quite particularly, the law is established. So long as payday lenders conduct business under said laws, they do not fulfill the claim that payday lending is “unlawful” in the usurious sense. In terms of payday lending being “excessive” or “exorbitant,” another Google search returns the following definition for “exorbitant”:

“Greatly exceeding bounds of reason or moderation”

Big Journalism wants to know what “reasonable” means when it comes to payday lending and usury. Essentially, it’s all relative. If a potential borrower concludes that the rate charged on payday loans is unreasonable, then they will more than likely avoid applying for such loans. If a potential borrower wants to borrow money at what they feel is a reasonable rate, but a lender determines the requested rate unreasonable for their business, then the lender will not assent to the payday loan. An interest rate that is mutually reasonable cuts to the very essence of how a free market economy works. A great number of payday lending transactions occur, so that means borrower and lender have been in agreement regarding reasonable interest rates. Payday lending therefore is neither unlawful nor unreasonable, as Big Journalism argues, and it is therefore not an instance of usury.

Returning to Nehemiah 5:9-10

Scripture does not condemn payday lending – where rates are both lawful and reasonable as per the above example. It does forbid usury, as do many secular laws worldwide. They are distinctly separate concepts. The danger in payday lending is when a borrower uses such loans in an irresponsible manner (for impulse purchases, or taking more than they know they’ll be able to repay by the maturity date). The borrower has the responsibility to make the decision on what best suits their financial situation. To guard both the business and consumer against a ruinous financial situation, the vast majority of payday lenders have income requirements in place. As various studies show that 94 percent of payday loans are repaid on time, the safeguards in place appear to be both lawful and reasonable. It doesn’t take someone with the qualifications of Big Journalism to reason that such is the case.